You have to work harder for the same total sales.
This article originally appeared in the January 2015 edition of INSTORE.
The shift during the recession that saw consumers buy lower-ticket goods (beads) on a more frequent basis in place of occasionally purchasing higher-value jewelry items had a dynamic impact in a number of areas for retailers. The most significant of these became most apparent during the peak of each holiday season when many jewelers struggled to cope with the increased time required to serve each of a greater number of customers, to end up with much the same dollar sales figure at the end of the day.
Fortunately, the market has now swung back and diamonds are in demand again. Nevertheless, this period highlighted the impact a shift in either quantity of sales or average sale can have on the dynamics of the sales equation.
The invisible cost of selling greater volumes at a lower ticket value is in the increased staff levels required to physically process and ticket the items. When the average retail value drops by 10 percent, the number of items sold has to increase by more than 11 percent to generate the same sales dollars (for example, a $50 average/retail x 10,000 items = $500,000 in sales. If the average retail sale drops by 10 percent to $45 and the number of items sold increases by 10 percent to 11,000 the result is a $45 average retail price x 11,000 items = $495,000. To maintain the dollar value of sales, you would need to increase units sold to 11,111 — an almost 12 percent increase.)
“When the average retail
value drops by 10 percent,
the number of items sold
has to increase by more
than 11 percent to generate
the same sales dollars.”
Be very wary of a falling average retail sale if the commensurate increase in units is not in the 15- to 20-percent range. This should allow a little extra GP to help cover any extra staffing costs.
A falling average retail does not make for a good business model, regardless of the increase in items sold. While cheaper items (say under $100) may have some appeal in lower income areas, historically, these are also the same people first impacted by any economic slowdown or any uptick in interest rates. Increasing the number of lower ticketed items in your store and windows may also inadvertently send the wrong message to your better customers, prompting them to change where they spend their jewelry dollars.
Just increasing the average retail of the inventory you buy is not the right answer either. Without a clear marketing and sales plan and staff training to make such a plan work, all that will happen is that your purchases will exceed your cost of sales and your cashflow will come under pressure. It’s a delicate balancing act, but some careful planning can help you determine how best to handle the situation.
David Brown is president of the Edge Retail Academy. To learn how to complete a break-even analysis, contact inquiries@edgeretailacademy.com or (877) 569-8657.